Ruthless, superrich & scot free

Perhaps, most despicable episode in Kolhatkar's book involves Mathew Martoma

Two men pass out in Sheelah Kolhatkar’s book about Wall Street skulduggery. I must confess that I was not expecting this. Hedge funders are supposed to be yodeling Tarzans, not fragile consumptives in a Verdi opera.
 
Only one of those men goes to jail, which is hardly surprising if you have even a passing familiarity with the story of the company they worked for, SAC Capital Advisors, and its founder, Steven A Cohen. Kolhatkar’s Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street tells it depressingly well. Justice is not served. The little guy does not triumph. In the words of Lemony Snicket: “If you are interested in stories with happy endings, you would be better off reading some other book.”
 
If Black Edge weren’t about real life, it would be an uncomplicated pleasure to read. Kolhatkar, a staff writer for The New Yorker and a former hedge fund analyst, expertly synthesises an enormous amount of material, including court documents and hundreds of her own interviews.
 
Cohen was not among them, alas. He seems to have given only three for-the-record interviews, ever, to reporters. But his silence may also have been liberating to Kolhatkar, who was not psychologically constrained by gratitude to her subject for letting her in.
 
For those who do not remember: SAC Capital was once one of the most powerful hedge funds on Wall Street. Cohen, its fabled steward, was different from the other colossi of the industry (George Soros, Paul Tudor Jones) in that he never seemed to have a grand unified field theory of investing. Rather, he had a talent for reading the market’s movements and a freakishly high threshold for tolerating risk.
 
And, miraculously, he was on the right side of almost every transaction — “something that seemed, at least on the surface, to be impossible,” Kolhatkar writes. This improbable winning streak eventually got the FBI’s attention, when it was investigating insider trading at a different hedge fund, the Galleon Group, and managed to lock up its chief.
 
But Cohen never faced a criminal charge. The most the government could do was order SAC Capital to shut down in 2013 and fine it $1.8 billion — a figure that sounds like an awful lot until you learn that Cohen had almost $10 billion of his own money left over, which he could still trade and invest as a private family office.
 
Even more striking to a civilian, though, is the other-planetary toxicity of SAC Capital’s culture. The competition was ruthless. Everyone was expendable, including partners and mentors. Cohen couldn’t tolerate anyone’s making money before he did — he’d fly into a rage if he heard that a portfolio manager had done a trade without giving him first dibs.
 
Kolhatkar makes a convincing case that Cohen leaned very hard on his employees to get vital information — to find an edge. Hence the book’s title: A “black edge” is early, private, proprietary information about a company. Cohen was too smart to declare explicitly that he wanted it. Instead, he’d ask his employees to give their assessments a “conviction rating,” from one to 10. And why would someone rate a conviction as nine without a black edge?
 
Perhaps the most despicable episode in Kolhatkar’s book involves Mathew Martoma, a portfolio manager for SAC. He struck up a mercenary friendship with an older, lonely neurologist, hoping to wrangle information from him about the status of an experimental drug to treat Alzheimer’s disease. The way Martoma went about seducing him is both sickening and extremely impressive.
 
It worked. Martoma contacted Cohen, who then arranged to unload millions of shares in two companies that were testing the drug. He shorted some of their stock for good measure.
 
Yet, when later pressed for specifics about it by the government, Cohen, “the greatest trader of his generation, who could track the price movements of 80 different securities at a time, claimed not to remember,” Kolhatkar writes. “He said ‘I don’t recall’ 65 times.” It worked. Martoma, as many people know, had a different fate.
 
So how do you end a book like this? In James B. Stewart’s Den of Thieves, it was easy: Michael Milken was sent to jail. Here, Kolhatkar doesn’t have so gratifying an option, but her ending is no less chilling for it. She notes that in 2014, Cohen made $2.5 billion by trading his personal fortune alone. “He is making plans to reopen his hedge fund,” she writes, “as soon as possible.”

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street 

Author: Sheelah Kolhatkar  

Publisher: Random House

Pages: 344

Price: $28

©2017 The New York Times